Croatia slashes growth hopes, seeks cut budget deficit

(ZAGREB) - Croatia slashed its 2014 growth forecast on Wednesday as the European Union's newest member struggles to exit a five-year recession and cut its deficit target to meet the bloc's rules.

Finance Minister Slavko Linic said he now expects the country's economy to grow by 0.2 percent in 2014, down from its previous forecast of 1.3 percent.

The prediction is in line with EU forecasts but far more optimistic than that of the International Monetary Fund, which on Monday said it expects Croatia's economy to contract by between 0.5 and 1.0 percent this year.

The minister also cut his budget deficit target by one percentage point to 4.5 percent of gross domestic product (GDP).

"We are still living beyond our means. The revision of the budget is the basis and the beginning of a process that we will continue in the coming years," Prime Minister Zoran Milanovic told reporters.

The former Yugoslav republic has been in recession for the past five years, hobbled by high unemployment and a bloated public payroll.

Zagreb is also struggling to meet rising borrowing costs for its huge debt burden.

The European Union launched disciplinary proceedings in January against its newest member over its budget deficit of 5.4 percent of GDP.

Brussels has told Croatia's centre-left government to cut that to 4.6 percent this year, with the aim of bringing it below the 28-nation bloc's limit of 3.0 percent by 2016.

Linic said he plans to boost government revenues by 3.5 percent this year compared to 2013, to 117 billion kunas (15.3 billion euros, $21 billion), by increasing revenues from the country's lottery tax, health insurance and concessions fees.

That will fund a slight increase in spending on the country's ailing health care services, which will increase 0.4 percent to 130.7 billion kunas.

"We...aim to reduce the public debt and deficit to harmonise with the European Commission's recommendations," Linic said as he presented the revised budget.